Reading a Renewal and an Experience Report
These terms appear on every experience report and renewal letter in the country. Once you can read them in order, you can tell within a few minutes whether an increase is defensible.
The money terms, in the order they appear
Premium
What the plan sponsor pays the insurer for the year. Cash in.
Check whether a figure is gross or net of tax. A billing statement usually shows premium plus Ontario RST; an experience report almost always shows premium before tax. Comparing one to the other invents an 8% gap that does not exist.
Paid claims
Money the insurer actually disbursed during the period. A cash-flow number.
The wrong number to rate on. A crown done in April and submitted in July lands in next year’s paid claims even though the risk belonged to this year.
Incurred claims
What the period actually cost: paid claims, minus payments made this period that belong to a prior one, plus a reserve for claims that happened in the period but have not been submitted.
The number underwriters rate on and the number you argue with. When a renewal letter and an experience report disagree, it is almost always because one quotes paid and the other incurred.
Incurred but not reported
IBNRThe reserve inside the incurred figure covering claims that have occurred but not yet arrived, set from the insurer’s own lag studies.
On a young plan, IBNR pushes incurred above paid. As the plan matures the reserve releases and incurred falls below paid. Both are normal; a wild swing between them deserves a question.
Loss ratio
Incurred claims divided by premium. Of every dollar in, how many cents went back out as benefits.
Confirm which one you are reading. The incurred loss ratio is the meaningful figure; a paid loss ratio on the same group in the same year can differ by twenty points.
Target loss ratio
TLRThe insurer’s break-even line — the share of premium they expect to pay out in claims. The remainder is retention.
Under target, your plan is profitable to the insurer and you have a case for a decrease. Over target, they are losing money and will come for it. A 72% target implies 28% retention, which is competitive for a small group; many sit at 30–40%.
Retention
Everything that is not claims: administration, claims adjudication, broker commission, pooling charges, premium tax, risk margin and profit.
This is the part of the premium a broker can actually influence, because broker commission sits inside it. On a small plan where every insurer’s rate is within a few points, it is often the most controllable lever available.
Deficit and surplus
The gap between premium and what the experience says premium should have been. A deficit may be carried forward and recovered through future rates; a surplus may be returned or held, depending on the accounting basis.
Ask outright whether a carried-forward deficit exists before marketing a plan. It can follow a group out the door, and it is often the hidden reason a renewal looks punitive.
Refund vs non-refund accounting
Under refund accounting, surplus belongs in some measure to the plan sponsor and can be returned or reserved. Under non-refund — sometimes called fully pooled — the insurer keeps the upside and absorbs the downside.
Almost every very small group is non-refund. Worth saying plainly: a good claims year does not earn a cheque, it earns a better argument at renewal.
Rate guarantee
The period the quoted rates hold — normally twelve months, occasionally fifteen to twenty-four on a takeover as an inducement.
A long guarantee is real value, but it is bought and priced into the rate. A twenty-four month guarantee against a twelve month one is not a like-for-like comparison.
Reading it end to end
Take the two main lines separately, always. A blended loss ratio hides the line that will drive your next increase.
A worked example from a real Ontario plan with eight covered employees. Health: premium $12,566, incurred claims $8,794 — a 70.0% loss ratio against a 72.0% target. The health line is profitable to the insurer. Dental on the same plan: premium $7,900, incurred $7,078 — an 89.6% loss ratio against the same target. The insurer lost money on dental.
Two lines, opposite stories, one plan. Blend them and you get 77.6%, which tells you almost nothing useful and hides the fact that any future increase is coming from dental.
On any renewal, before forming an opinion: the incurred loss ratio by line, the target loss ratio, and the credibility. Those three tell you whether there is an argument, how strong it is, and whether the insurer is obliged to listen. Everything else is detail hanging off them.
Pooling — why one catastrophic claim does not end a small plan
Left to pure experience rating, one catastrophic claim would destroy a small group. A single specialty drug can run past $200,000 a year, indefinitely. Against an eight-life plan with a $20,000 annual premium, that is not a rate increase — it is the end of the plan.
Pooling prevents it. Claims above a threshold are lifted out of your experience and charged to a shared pool every group contributes to. You pay a pooling charge inside retention; in exchange, the catastrophic claim never touches your loss ratio.
Large amount pooling
LAPThe insurer’s threshold above which an individual’s claims in a year are removed from the group’s experience. It scales with group size — smaller group, lower threshold, more protection, higher pooling charge.
Always ask the pooling level when comparing quotes. A cheaper rate with a higher pooling threshold is not cheaper; it is risk handed back to you that surfaces in your next bad year.
Industry drug pooling
CDIPCAn agreement among most Canadian insurers, administered through the Canadian Drug Insurance Pooling Corporation, that shares recurring high-cost drug claims across participating insurers rather than leaving them with one. It exists so that small fully insured groups remain insurable and are not refused renewal over a single member’s medication.
Applies to fully insured groups under a size threshold that varies by insurer and band, so confirm rather than assume. Two consequences: a small plan with a catastrophic drug claimant is still marketable, and an insurer declining to quote purely on that basis is worth challenging.
Fully pooled
A line, or an entire small group, rated purely on the insurer’s book with no experience component. Common for life, AD&D and dependent life, and for health and dental below a size floor.
If your plan is fully pooled, showing your experience report to an underwriter changes nothing about the quote. Use it to understand what you are buying, not to negotiate.
Pooling charge
The premium loading that funds the pool. Sits inside retention and rises as the pooling threshold falls.
On a small plan this can be a meaningful slice of retention. It is also the most defensible line in it — arguing it down means accepting more catastrophic exposure.
Stop-loss
The self-funded equivalent of pooling: insurance a self-insured plan buys to cap its exposure, either per individual or across the whole plan.
If self-funding is ever proposed to you, stop-loss is not optional. Self-funding claims without it is one catastrophic case away from a crisis.
If one of your people develops a condition needing a $180,000-a-year drug, your plan does not collapse. That claim is lifted out of your experience and shared across the insurer’s whole book. Part of what you pay every month buys that protection. It is the least visible thing your plan does and probably the most valuable.